The December 19, 2008, issue of the State Journal contained an article by Professor Russell S. Soebel, Ph.D., which concluded that the continuation of the Certificate of Need Program in West Virginia is likely to have the overall effect of artificially raising the costs for health care services, such as, MRI's and CT's, thereby benefiting hospitals and other health care providers. Dr. Soebel concludes: 1) that a previous article Dashle Gunn Kelly asserting the Certificate of Need Program raised health care costs was correct; and 2) that the position adopted by Joseph Letnaunchyn, President of the West Virginia Hospital Association, stating that one of the benefits of continuing the Certificate of Need Program was to reduce health care costs was wrong. On first blush it appears that one of these two sides must be correct. As a lawyer dealing in health care matters over the past seventeen years, it would be easy for me to weigh-in on this question from a detailed factual perspective. However, rather than sort through the thorny factual issues necessary to determine who is right and who is wrong, this article proposes to sift through the conflicting economic arguments in light of how our health care economy actually works. Confusing as it might seem, based strictly upon economic analysis, both Mr. Letnaunchyn and Dr. Soebel could be right depending upon the particular facts and circumstances advanced to support their arguments.
Professor Soebel concludes that the goal of the Certificate of Need Program is to reduce the quantity of medical services provided by restricting the number of facilities and machines so that the price hospitals can charge for using the remaining services remains higher. Supporting this conclusion is the simple economic analysis that if the supply of these health care services is less than the actual demand, then price can be artificially elevated (by restricting the supply of services). However, this conclusion, like most economic analyses, is based upon the underlying assumption that the supply of health care services, such as the examples used for MRI's and CT's, is far less than the demand or need for these services. Therefore, Professor Soebel's conclusion that eliminating the CON program would result in more MRI's and more CT's, and therefore lower prices for patients purchasing these services is correct only if the supply of these services is much less than the actual demand for such services (increasing the supply will then lower costs).
On the other hand, strangely enough, it may also be true that the elimination of the Certificate of Need Program might result in no price decreases and might actually result in price increases. How can both arguments be correct from an entirely economic perspective? Here's the rub. If the demand for MRI or CT services (or other health care services) is greater than the existing supply, then in the short run the price will actually increase until the supply either equals or exceeds demand. Therefore, economics leads us to believe that prices may initially increase as a result of the elimination of the Certificate of Need Program.
Once supply exceeds demand upon the expansion of these services, can we then expect the price of the services to drop? Maybe. Many respected economists believe that the laws of economics do not always apply in a rational manner to decisions made by healthcare consumers to purchase health care services for several reasons.
First, for critical health care services, consumers' desire for quality may result in consumers being willing to demand quality over price, especially if they do not personally have to pay the price difference out of their own pockets. For example, consumers looking to purchase open heart surgery services may be more concerned with the experience of the surgeon than the price of these services. Second, consumers may not be fully educated in the sense that they do not always know in advance the expected price of hospital and other health care services. There is an effort under way at the West Virginia Health Care Authority to make price and quality data about hospital services available on its website. While it is true that West Virginians are becoming better health care consumers, it cannot be ignored that decisions to purchase health care services do not strictly follow traditional economics. Thus, for these reasons, there may be room to doubt that elimination of the Certificate of Need Program will result in significant cost savings to consumers.
On the other hand, what is the effect of having more facilities or medical equipment than needed? The effect may be that either these facilities are shut down and services are eliminated or that prices remain artificially high. If the facilities or services are reduced only to the point of demand or need then West Virginians will likely not be deprived of access. But, since it is often inefficient and impractical to partially close facilities or scale down services, there is a real threat that these facilities and services will be totally closed or eliminated, resulting in less services than are needed. Thus, there is a real dilemma in seeking elimination of the CON programs in a rural state like West Virginia. If we eliminate the Certificate of Need Program there will be no thoughtful allocation of scarce resources, leaving the availability and affordability of health care services to the whims of the market place (this can result in some harsh realities).
The Certificate of Need program is currently being studied by West Virginia University and is being reviewed by the West Virginia Health Care Authority. Policymakers and stakeholders in West Virginia should keep in mind that the average cost for health care services in West Virginia is generally lower than neighboring states which do not have certificate of need programs. In addition, the Certificate of Need Program has recently served its purpose in applying the brakes to the rapid expansion of home health and behavioral health services over the past decade.
My personal view of the big picture is that the West Virginia Health Care Authority serves an important role in closely analyzing the need for a particular new service and in a particular service area. Through the Certificate of Need process, the West Virginia Health Care Authority is asked to determine for a particular proposed service or facility: 1) the number of existing providers; 2) the current utilization for these services in a given service area; 3) the projected demand or need for the service in question, and 4) whether the service meets other important criteria, such as quality of care. Providers, consumers and other stakeholders are given the chance to weigh in on these issues in a hearing. In the absence of the Certificate of Need process, there may be no meaningful way to do so (other than the choices left to consumers). In the absence of the Certificate of Need Program, while it certainly would be easier to expand certain services and eventually prices might drop-- there is no assurance that this will ever occur. It is possible that many hospitals in rural West Virginia will be left with no feasible means to keep the doors open. West Virginians may be faced with traveling great distances to access critical health care services. We may not like the ultimate results in terms of availability and quality of services, and the costs of the remaining services may not drop substantially. We should be careful to not throw the baby out with the bathwater. I believe it is wise to adjust the existing Certificate of Need laws to keep existing services both available and affordable.
Economic arguments aside, there are many other sound public policy reasons for the continuation of the Certificate of Need Program in West Virginia. While these issues are certainly worthy of further debate and detailed scrutiny, I believe it would be premature to eliminate the Certificate of Need Program based strictly upon the economic arguments advanced to date.
As seen in the January 30th issue of The State Journal.